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BONUS SHARES

BONUS SHARES :

The issue of bonus shares by the subsidiary company will increase the number of shares held by the holding company as well as the minority shareholders. Issue of bonus shares may or may not affect the cost of control depending upon whether such shares are issued out of capital profits or revenue profits.

(a) Issue of bonus shares out of capital profit (Pre-acquisition profits): In this case there will be no effect on accounting treatment because while calculating the cost of control the share of the holding company in pre-acquisition profit is reduced because of capitalisation of profit and the paid-up value of shares held in subsidiary company is increased. Hence there is no effect on cost of control when bonus shares are issued from pre-acquisition profit.

(b) Issue of bonus shares out of post acquisition profit: In this case, a part of the revenue profits will get capitalised resulting in decrease of cost of control or increase in capital reserve.

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